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CMA Intermediate · Financial Accounting · Introduction to Accounting Standards (GAAP, AS and Convergence to Ind AS)

Sundaram Textiles Ltd has used the same inventory valuation method for years. A newly available method would give more relevant and reliable information, but the management wants to keep the old one to maintain comparability. As per the Framework, what is the correct position?

It is inappropriate for Sundaram Textiles to leave its policy unchanged. The Framework states that comparability should not be confused with mere uniformity, and an enterprise should not retain policies when more relevant and reliable alternatives exist. Any change should be disclosed with its effects.

  1. AKeeping the old method is required, because comparability means uniformity
  2. BKeeping the old method is appropriate as long as it was acceptable earlier
  3. CChanges in policy are prohibited once a policy has been disclosed
  4. DIt is inappropriate to leave policies unchanged when more relevant and reliable alternatives existCorrect

Explanation

The Framework says the need for comparability should not be confused with mere uniformity and must not impede improved standards. It is inappropriate to leave accounting policies unchanged when more relevant and reliable alternatives exist. The option claiming comparability requires uniformity is exactly the confusion the Framework warns against.

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